Sales tax revenues soar, but some cities don’t share trend

For a state still struggling to recover from massive damage from Hurricane Katrina at the same time another hurricane season is headed its way, there is some very welcome news on the sales tax revenue front.

The flip side of the widespread destruction is the massive amount of consumer spending now to repair homes and replace appliances, furnishings and vehicles. As a result, the sales tax revenues for the state are “on fire,” as one legislator put it.

“The sale tax general fund collections for the fiscal year to date through April 30 are up about $159 million, an increase of 12.39%. That has contributed to an increase of $240 million in the general fund, which is 7.75% above predictions,” said Kathy Waterbury, director of communications, State Tax Commission. “Use tax is the baby brother of sales tax. It is also up significantly. It is up $45.5 million. That is 36% above estimates. Use tax is sales tax for items purchased out of state that are brought into the state.”

A lot of people are replacing automobiles and other vehicles destroyed in the storm. There is also a lot of construction equipment being brought into the state that is subject to use tax.

Since a percentage of sales taxes are diverted to cities, it is welcome news especially in the southern region of the state most impacted by storm damage.

“Certainly in times like this when many cities don’t know what their property taxes are going to be, it is helpful to receive an increase to their city diversion,” Waterbury said. “Obviously, for the state during this time, it is also encouraging. Sales tax increases are being seen all over the state. The increases are in the things you would obviously expect: building materials, furniture, appliances and vehicles — those things that look toward recovery. We had roof damage almost all over the state. People are replacing the roofs on their homes.”

Coast cities that have seen a growth in retails sale since Katrina include Gulfport, Ocean Springs, Pascagoula, Gautier and Moss Point, but not Biloxi, Bay St. Louis, Long Beach, Pass Christian or Waveland.

With only three casinos back open after eight months, Biloxi’s sale tax revenues were down from $1.1 million in March 2005 to $761,000 in March 2006. Its neighbor to the north, D’Iberville, has a large commercial district just north of Interstate 10 that was little impacted by Katrina.

Sales from that area have helped boost the city’s tax revenues to $455,000 in March 2006 compared to $295,000 in March 2005.

Bay St. Louis had a thriving nightclub, restaurant and artsshopping district on the waterfront that was decimated by the Katrina storm surge. Not many businesses have built back yet in the Old Town area, and sales tax revenues are down $267,000 thus far for the fiscal year. Bay St. Louis had sales tax diversions of $91,000 in March 2006 compared to $117,000 in March 2005.

Neighboring Waveland is down $560,000 for the fiscal year. Pass Christian revenues are way off, as well. March 2005 sales tax revenues were $105,000 compared to only $45,000 in March 2006. For the fiscal year Pass Christian is down $439,000.
Marianne Hill, senior economist, Center for Policy and Research, Institutions of Higher Learning, said something needs to be done to help the cities that will take longer to recover their tax base.

“While low-cost debt is available to cities suffering from loss of their property tax base, those municipalities which rely heavily on taxes from small businesses and residences require added assistance for recovery,” Hill said. “If Mississippi wishes to preserve its community-centered Coast, more resources will have to be directed to coastal communities. Such a use of the added tax revenues now available would certainly seem fitting and appropriate.”

Hill said it is likely that the growth rate of revenues in the next fiscal year will be lower, but the high levels of collections can be expected to continue, along with positive rates of increase as rebuilding begins in earnest.

“The last time the state had a double-digit increase in transfers to the general fund was in 1994 and before that in 1984 — both years with exceptional growth rates of output and employment,” Hill said. “The growth rate of Mississippi’s economy will likely surpass that of the rest of the nation over the next two to three years, due to the rebuilding of the Coast.

“The state continues to face huge challenges in addressing unmet needs of the coastal community and evacuees — in housing, social services and job creation. At the same time, the state has an important role to play in monitoring developments on the Coast, assisting residents there and providing feedback to Washington on progress on the Coast and the effectiveness of federal programs. Our organizational capacity to address all these issues needs to expand. Our congressional delegation, the governor and other public officials will continue to have their hands full for some time.”

Even cities that saw big increases in their sale tax diversion checks still have challenges paying all the bills.

“While a continued increase in sales tax collections may help cover the expected loss in property tax and gaming revenue, the city could still be short over $3 million due to losses in water and sewer revenue,” said Mike Necaise, director of finance and administration for the City of Gulfport. “These unexpected gains will certainly be helpful, but we cannot guarantee that they will compensate for the substantial monetary and structural losses the city incurred due to Hurricane Katrina.”

Gulfport saw its largest sales tax diversion check ever in January, an increase of 116% over January 2005. That represented $2.79 million in tax revenues compared to $1.5 million in revenues in January 2005. February revenues were up 51%, and March revenues were up about the same percentage with a total of $2.2 million compared to about $1.5 million in 2005.

“This is a very promising sign for the city’s economy,” Necaise said. “If the sales tax trend continues, the city expects to end the year with sales taxes up about 30%. That would represent an increase in sales tax revenues of about $6 million. As of the end of April, Gulfport’s sales tax collections totaled about $18 million compared to $13.3 million during the same time period in 2005.”

Necaise said it is good news that people are buying more and they are buying in Gulfport.

“Hopefully these funds will help revitalize and encourage growth in our devastated community,” he said.

Gautier and Ocean Springs also have seen sales increase significantly since the storm. Gautier’s sales tax diversions in March 2005 were $178,000 compared to $293,000 this year. Ocean Springs was up from $306,000 to $449,000.

Sales tax collections in the Hub City, Hattiesburg, are now nearly as high as Gulfport’s. Hattiesburg, which has the third-highest sales tax collections in the state, saw an increase from $1.5 million in March 2005 to $2 million in March 2006. Year to date, Hattiesburg has collected $17.2 million compared to $13.4 million in the same time period in 2005.

Meridian is also up, although not as dramatically. Meridian had sales tax diversions of $1.2 million in March 2006 compared to about $1 million in 2005.

Tupelo was at $1.3 million compared to about $1.2 million in 2005.

Jackson still leads the state in sales tax collections with a total of $3.2 million in March 2006 compared to $2.9 million in March 2005. Flowood is seeing increased sales, going from $495,000 in March 2005 to $652,000 in March 2006. Ridgeland has gone from $744,000 in March 2005 to $803,000 in 2006.

While the biggest increases are being seen in sales and use taxes, individual and corporate income taxes are also up. At the end of April, individual income taxes were up 5.31% over the estimate, representing an increase of $48.7 million. Corporate income taxes were up $13.1 million over the estimate, an increase of 4.15% above the estimate.

Some revenues are down, gaming in particular. That reflects the number of Coast casinos destroyed by Katrina. Gaming revenues are down about 24% below the estimate, a loss of $38 million.

For more information on sales tax diversions in Mississippi, see the Web site http://www.mstc.state.ms.us/.

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